Bankers risk an "uncontainable" political backlash unless they agree to wide-ranging reforms to the financial sector, the favourite candidate to become the next Bank of England governor has said.

Paul Tucker, currently its deputy governor, warned that without structural reforms that limit the cost of breaking up failing banks and prevent taxpayer bailouts, bankers would find themselves with few defences against an angry public.

Tucker made his comments on Friday in response to demands from senior bankers at an international banking conference that regulators relax strict rules designed to prevent a repeat of the Lehman Brothers crash in 2008.

A senior Japanese bank executive said taxpayers should remain on the hook for losses in the event of a crisis, while the one of the top brass at Deutsche bank argued that plans to ringfence the casino arms of major banks from their retail operations would make them less efficient and raise costs for customers.

Speaking at the Institute of International Finance in Tokyo, Tucker said it was necessary to guarantee that taxpayers would escape paying again to bailout banks.

"The objective is to get to a point where public money is not used. If there was to be another financial crisis, once we have got through this one, and there was a need to bail out the banks, I think the backlash would be uncontainable," he said.

Tucker was joined by Thomas Hoenig, a regulator on the US Federal Deposit Insurance Corporation, who said many major banks were too big to fail and needed to be broken up.

The debate highlights the battle going on behind the scenes at meetings of regulators as they seek to agree rules for global bank regulation.

The US has passed the Dodd-Frank Act, while the UK plans to bring in new laws based on a report by Sir John Vickers, who is also understood to have applied to succeed Sir Mervyn King as Bank of England governor. The EU is readying to push through new supervisory rules, though is only just considering a report that considers how to break up banks.

Tucker said he believed it was possible for regulators to sit down with senior bankers and agree a method to re-finance them from private sources when they get into trouble, but they must accept public funds are off limits.

Nobuyuki Hirano, president of Bank of Tokyo-Mitsubishi, said a taxpayer bailout should remain in the armoury of regulators. He said that without the possibility of taxpayer funds being used to re-finance banks, regulators were tying one arm behind their backs.

Anshu Jain, co-chairman of Deutsche's management board, said attempts to ringfence the activities of banks would raise their costs and hit efficiency.

"In retrospect, it was a fool's paradise – the band playing oblivious to the dangers ahead," he said. "A lot of apparently very clever people got it very wrong and the ordinary citizen suffered. We have to do better in future."